RBI has extended the period of avoidance of loan moratorium (EMI) for three months. As per the new directive, RBI has got the facility to avoid EMI on your loan by August. RBI has already given this facility of avoiding EMI from March to May. However, as banking peers, it is not as attractive as it looks from outside. It should be decided only after a fine study. It is a matter of understanding how much this three-month facility will affect your pocket.
Interest on Interest
According to media reports, former banker SP Lodha says the facility to avert EMI will not harm the bank. If the banks are avoiding your EMI for six months, they are also taking the recovery with interest. That means you have to pay interest on interest. RBI has given three months' grace on payment of loan EMI. But, the interest has not been waived. Since no security is taken on loans like personal and credit cards. So, interest rates can be more piercing you. It is necessary to assess how important it is for you to avert EMI. If you can give the EMI, otherwise you can go a lot more money from your pocket.
Bank's Advice
State Bank of India (SBI) has also said that only 20 percent of the customers have taken advantage of avoiding EMI from March to May. This means that most of the customers are paying the EMI of the loan. The Indian Banking Association (IBA) has responded to commonly asked questions about avoiding EMI. The IBA has said that borrowers whose incomes have not been differentiated should pay their EMI on time. If your income has really decreased, you can avail of this relief. But you should know that you will not have to give anything during that period, the EMI that you are going to do. But later on, it will take an interest, and you have to pay.
How much will the EMI increase:
If you want to avert an EMI, the banks are giving them three options.
First Option:
The interest that is made on not paying the installment in the moratorium period should be paid in August with interest. For example, if someone has taken a loan of Rs 29 lakh for 20 years, his EMI is Rs 25,225. If he deferred the EMI for six months, the total EMI was Rs 1,51350. The borrower may have to pay interest up to 5 to 7 percent fixed by the bank. If you give seven percent interest, the total amount will sit at Rs. 1,61944.
Second Option:
Six EMIs should be linked with the loan. The loan period should not be extended, but the EMI amount should be increased. The loan EMI for 20 years at Rs 29 lakh is Rs 25,225. So far, you have disposed of 12 installments, and 228 installments are left. Now, if you have EMI for 6 months, the EMI will be close to Rs 25,650 instead of 25,225. The loan period will remain the same.
Third Option:
The EMI should not be increased, but the loan period should be extended. If you now have an EMI for six months on a 20-year loan of Rs. 29, your 7 EMIs will be increased later. It will also include interest in six months of EMI.
Read also: IRDA announces withdrawal from motor insurance for 3 and 5 years
Keep these tips in mind before taking any loan: Know the loan rate of PNB, SBI, HDFC, ICICI, and UBI
Do these things, or else your Health Insurance Policy may get rejected
Image credit: etmoney